Battilana and Dorado - Building Sustainable Hybrid Organizations

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Building Sustainable Hybrid Organizations: TheCase of Commercial Finance Organizations

ARTICLE in THE ACADEMY OF MANAGEMENT JOURNAL · DECEMBER 2010

Impact Factor: 5.61 · DOI: 10.5465/AMJ.2010.57318391

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Julie Battilana

Harvard University

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Silvia Dorado

University of Rhode Island

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BUILDING SUSTAINABLE HYBRID ORGANIZATIONS: THECASE OF COMMERCIAL MICROFINANCE ORGANIZATIONS

JULIE BATTILANAHarvard University

SILVIA DORADOUniversity of Rhode Island

We explore how new types of hybrid organizations (organizations that combine insti-tutional logics in unprecedented ways) can develop and maintain their hybrid naturein the absence of a “ready-to-wear” model for handling the tensions between the logicsthey combine. The results of our comparative study of two pioneering commercialmicrofinance organizations suggest that to be sustainable, new types of hybrid organ-izations need to create a common organizational identity that strikes a balance be-tween the logics they combine. Our evidence further suggests that the crucial earlylevers for developing such an organizational identity among organization members arehiring and socialization policies.

In the early 1990s, following explosive demandfor their services, a number of nongovernmentalorganizations (NGOs) that provided loans to thepoor decided that the only way to keep up with thedemand was to spin off commercial microfinanceorganizations. These new organizations combinedtwo previously separate institutional “logics”: a de-velopment logic that guided their mission to helpthe poor, and a banking logic that required profitssufficient to support ongoing operations and fulfillfiduciary obligations.1 Observers feared that trans-

gressing the boundaries between providing servicesto the poor and providing financial services wouldjeopardize the fundamental mission of helping the

poor (see, e.g., Drake & Otero, 1992). The pioneer-ing commercial microfinance organizations thusfaced the double challenge of having to survive asnew ventures while striking a delicate balance be-tween the banking and development logics theycombined so as to avoid “mission drift.”

Founding a new venture is risky under any condi-tions (Stinchcombe, 1965). When the start-up is anew type of hybrid organization—that is, one thatcombines different institutional logics in unprece-dented ways—it is especially so (Scott & Meyer,

1991). A few studies have explored the challengesfaced by hybrid organizations, challenges arisingfrom tensions and potential conflicts among the log-ics the hybrids embody (Glynn, 2000; Heimer, 1999;Zilber, 2002). These studies, however, were of matureorganizations in which institutionally prescribed“archetypal” forms were well established (Green-wood & Hinings, 1993), thereby providing models forhow to handle potential conflicts among logics.

In contrast, new types of hybrid organizations can-not rely on any “ready-to-wear” model. Research hasshown that in this context, tensions and conflicts

among logics may abate as one logic gains dominanceover others (Selznick, 1949). This evidence suggeststhat new types of hybrid organizations are highlyunstable and unlikely to retain their hybrid natureover time (Scott & Meyer, 1991). Echoing fears ex-pressed by observers of commercial microfinance,this previous research raises the question of wheth-er—and if so, how—new types of hybrid organiza-tions can build and maintain their hybrid nature.

We explored this question through a comparativecase study (Eisenhardt, 1989) of two pioneering com-mercial microfinance organizations: Banco Solidario

We would like to thank Royston Greenwood and threeanonymous reviewers for their valuable comments onearlier versions of this work. We also wish to acknowl-edge the helpful comments we received from MichelAnteby, Thomas D’Aunno, Marya Besharov, MichaelChu, Herminia Ibarra, Rebecca Henderson, Linda Hill,Katherine Kellogg, Matthew Kraatz, Johanna Mair,

Joshua Margolis, Christopher Marquis, Nitin Nohria,Siobhan O’Mahony, Anne-Claire Pache, Leslie Perlow,Lakshmi Ramarajan, Susan Schneider, Metin Sengul,David Thomas, Patricia Thornton, Michael Tushman,

J. D. Von Pischke, Anthony Wheeler, and participants inthe Qualitative Inductive Ethnographic Talking Group,the HBS OB workshop, and the subtheme 32 discussantson professsions, institutions, and change at the 2007EGOS conference.

1 Institutional logics are taken for-granted social pre-scriptions that guide actors’ behavior (Friedland & Al-ford, 1991; Ocasio, 1997; Suddaby & Greenwood, 2005;Thornton, 2004) in fields of activity.

Academy of Management Journal

2010, Vol. 53, No. 6, 1419–1440.

1419Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express

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(BancoSol) and Caja de Ahorro y Prestamo Los Andes(Los Andes). These two organizations, which were

both created in the early nineties in Bolivia, faced thesame challenge of building and maintaining their hy-

bridity but approached it differently and with varyingsuccess. They thus provided an ideal field setting foraddressing our research question.

The results of our comparative study suggest that to be sustainable, a new type of hybrid organizationneeds to create a common organizational identity thatstrikes a balance between the logics the organizationcombines. Such an identity prevents the formation of subgroup identities within the organization. Thesesubgroup identities, if they emerge, may exacerbatetensions between logics, thereby making their combi-nation untenable. Our study further suggests that thecrucial early levers for developing an organizationalidentity that supports the sustainability of a novellogic combination are hiring policies, which definewho can become an organization member, and social-ization policies, which teach and reinforce desired

behaviors and values in hires (Van Maanen & Schein,1979). Our study also identifies limits to the influenceof hiring and socialization policies in mitigating ten-sions between institutional logics within organiza-tions. Overall, this study is a response to calls forresearch bridging the intraorganizational and institu-tional levels of analysis (Greenwood & Hinings, 1996;Hirsch & Lounsbury, 1997).

THE CHALLENGE OF SUSTAINABLYCOMBINING LOGICS FOR NOVEL HYBRIDS

As broad belief systems that shape cognition andguide decision making in a field (Friedland & Al-ford, 1991; Ocasio, 1997; Suddaby & Greenwood,2005; Thornton, 2004), institutional logics are tak-en-for-granted social prescriptions that representshared understandings of what constitutes legiti-mate goals and how they may be pursued (Scott,1994). Over the past two decades, research in insti-tutional theory has studied the role logics play inshaping actors’ beliefs and practices as well as howthese logics emerge, rise, and fall (Dobbin, 1994;

Thornton & Ocasio, 1999).Research has also shown that multiple institutionallogics often coexist in organizational fields (e.g., Mar-quis & Lounsbury, 2007; Reay & Hinings, 2005),where they may impose different, and potentiallyconflicting, demands on organizations (D’Aunno,Sutton, & Price, 1991; Goodrick & Salancik, 1996;Oliver, 1991). These studies have contributed to ex-plaining variance in organizational practices withinand across organizational fields (Lounsbury, 2007).They have rarely, however, examined how organiza-tions deal internally with institutional pluralism—

that is, with demands imposed by multiple institu-tional logics (Kraatz & Block, 2008; Pache & Santos,2010).

Dealing with multiple institutional logics is chal-lenging for organizations because it is likely to triggerinternal tensions that may generate conflicts amongorganization members, who are ultimately the ones

who enact institutional logics (Glynn, 2000; Heimer,1999; Zilber, 2002). It is particularly challenging fornew types of hybrid organizations because, in con-trast with organizations that incarnate existing organ-izational archetypes, new hybrid forms can rely nei-ther on an existing model for handling the tension

between the logics they combine nor on a pool of jobcandidates with experience in doing so.

What new types of hybrid organizations can do ishire candidates who have worked in organizationswith archetypes that embody each of the institutionallogics they combine. These individuals are likely tohave capabilities that the new hybrid organizationcan leverage. But, because of their previous training,experience, and general exposure to the workings of organizations embodying existing archetypes, thesehires are also likely to be carriers of the institutionallogics that these archetypes incarnate (March & Ol-sen, 1976, 1989; Wheeler, Buckley, Halbesleben,Brouer, & Ferris, 2005). They will thus have precon-ceived notions as to what to expect and how to be-have in organizations (Bourdieu, 1998; Scott, 2003;Scott, Ruef, Mendel, & Caronna, 2000). Whom, then,should new types of hybrid organizations hire?Should commercial microfinance organizations, for

example, only hire carriers of the banking logic, oronly carriers of the development logic? Or neither? Or

both? And how can such hybrid organizations social-ize their members into a desired set of behaviors andvalues so as to build and maintain their hybridity?These are the questions that we set out to explore.

METHODS

BancoSol and Los Andes, our two research sites,had similar histories and organizational structures.Both were created at approximately the same time,

in the early 1990s, as spin-offs from existing NGOs.Both had their headquarters in La Paz and a net-work of local offices clustered into regional centers.Both were forced to address the coordination chal-lenges imposed by Bolivia’s poor communicationand transportation infrastructure and an imposingtopography that includes the Andean altiplanonext to the Amazonian jungle. Apart from lendingdecisions, which by and large were made at thelocal office level in both organizations, decisionswere made via relatively centralized processes.Critical areas such as marketing and hiring were

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central, distinctive, and enduring organizational at-tributes that define how organization members an-swer the question “Who are we?” (Albert & Whetten,1985; Whetten, 2006), played a crucial role in han-dling these tensions in both organizations. This ob-servation resonated with findings from the identityliterature on the relevance of organizational identity

for organizations’ incorporation of multiplicity (Al- bert & Whetten, 1985; Pratt & Foreman, 2000; Pratt &Kraatz, 2009) as well as with findings from the insti-tutional literature on the role of organizational factorsin how actors handle tensions among institutionallogics (Binder, 2007; Fine, 1995).

The analysis of the interviews also revealed thathiring policies, which define who can become anorganization member, and socialization policies,which teach and reinforce desired behaviors and val-ues in hires (Van Maanen & Schein, 1979), were thekey levers used to influence the formation of Ban-coSol’s and Los Andes’ organizational identities.Echoing findings from research on socialization(Feldman, 1976, 2002; Gómez, 2009; Jones, 1986;Saks & Ashforth, 1997), we identified training, pro-motion, and incentive systems as the key design fac-tors that were leveraged in both organizations to teachand reinforce desired behaviors and values in organ-ization members. This observation coincided withfindings from the literatures on organizational iden-tity (Alvesson & Kärreman, 2007; Ashforth & Mael,1989, 1996; Wang & Pratt, 2008), the “old institution-alism” (Selznick, 1949, 1957), and start-ups (Aldrich,1999; Aldrich & Ruef, 2006; Baron, Hannan, & Bur-

ton, 2001; Burton, 1995), which have identified hir-ing and socialization as primary means of imprintingorganizational attributes at times of organizationalfounding.

The final step of the pattern analysis of the evi-dence was to confirm our preliminary findings in thelarger set of interviews conducted and the field notestaken during site visits and lending trips with loanofficers. For the interview data, this confirmatoryanalysis was abetted by a search, using qualitativeresearch software (NUD*IST), for relevant keywords;these included “attract,” “contract,” “hire,” “train-

ing,” “employment,” “job,” “career,” and “incen-tives.” This simple search served to assure that wewere not missing alternative views of the hiring andsocialization policies employed by BancoSol and LosAndes, thereby helping us to complete the narrative.

In the sections that follow, we offer backgroundinformation on the rise of microfinance and then fo-cus on BancoSol and Los Andes to introduce theresults of our analysis. Following Lincoln and Guba(1985), we divide the presentation of our results intofirst-order interpretations (those closer to our inter-view data, archival materials, and field notes) and

second-order interpretations in which we proceed toanswer our research questions.

THE RISE OF MICROFINANCE

The origin of microfinance is generally traced tothe Grameen Bank, founded in Bangladesh in 1975

by Professor Mohamed Yunus, who characterizesthe mission of microfinance organizations as pro-viding the poor—whom he describes as “naturalentrepreneurs”—with working capital with whichthey can realize their entrepreneurial instincts(Bruck, 2006). As one history of microfinancenoted, “Market vendors [buy] on the days the bigtrucks come—Wednesdays and Fridays. They [sell]over the weekend. On Mondays they have money”(Rhyne, 2001: 71). By way of example, a $100 loanenables a market vendor to buy merchandise dur-ing the week, sell it at retail over the weekend at ahealthy markup, and, after repaying the loan, stilltake home a healthy profit on Monday. Before theadvent of microfinance, such small loans were onlyavailable from informal lenders (e.g., loansharks,pawnshops) at annual rates well over 100 percent

because conventional formal financial institutionswere skewed toward serving wealthy borrowers.

Microfinance was initially regarded as a purelynot-for-profit endeavor undertaken mainly by NGOsand reliant on donations for financing. MicrofinanceNGOs departed from traditional NGOs in claimingthat lending to the poor could be managed as a self-sustaining endeavor by charging interest rates suffi-

ciently high to cover the cost of lending, and in in-sisting on loan repayment, which was previouslylargely not required of the poor, though considereddesirable (see Adams & Von Pischke, 1992). The de-parture from the NGO archetype became more ex-treme in the early 1990s, after BancoSol-NGO and LosAndes-NGO spun off their lending operations intoregulated commercial organizations (BancoSol andLos Andes) in an effort to gain access to the commer-cial funds needed to keep pace with the burgeoningdemand from the poor for loans.

The newly created commercial microfinance organ-

izations continued to provide loans to low-incomeentrepreneurs in the manner of NGOs through target-ing individuals who were disenfranchised3 from thefor-profit financial sector; but by becoming financialintermediaries, the new organizations incurred fidu-ciary responsibilities to depositors and investors

3 “Disenfranchised” individuals are those who, aftercenturies of exclusion because of their economic status,gender, ethnic origin, or race have finished by operatingat the outskirts of mainstream institutions.




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(Drake & Otero, 1992; Otero & Rhyne, 1994). Ban-coSol and Los Andes were subject to regulations andsupervision and, correspondingly, to the thinking of conventional financial institutions (Drake & Otero,1992). They did not, however, embrace the bankingarchetype exclusively. Instead, they became a newtype of hybrid combining the development and bank-

ing logics in an unprecedented way. The develop-ment logic pressed them to retain their mission of providing access to financial services to those ex-cluded from the conventional financial sector, whilethe banking logic simultaneously pressed them tofulfill the fiduciary obligations of commercial finan-cial institutions. To respond to these two mandates,commercial microfinance organizations had to

bridge the development and banking logics, andin doing so they contributed to the constructionof an emergent commercial microfinance logic.Table 1 summarizes the goals, clients, and man-

agement principles that characterize the banking,development, and the emerging commercial mi-crofinance logics.

Commercial microfinance organizations faced therisk of mission drift, a credible possibility because of the relative ease with which circumstances mightdivert these organizations into prioritizing the bank-ing logic over the development one. What circum-stances would these be? One is the cost of makingloans; this is about the same whether $500 or $5,000is loaned, but the latter yields ten times more reve-nue. Another is poorer entrepreneurs’ high exposure

to boom-and-bust cycles.4 To offset the risk of wide-spread loan defaults, organizations may broaden theirportfolios to include a growing number of clientswith access to conventional banks.

THE HYBRIDIZATION CHALLENGES ATBANCOSOL AND LOS ANDES

BancoSol and Los Andes pioneered commercialmicrofinance (see Navajas, Schreiner, Meyer,Gonzalez-Vega, & Rodriguez, 2000) and thus had toface the challenge of combining the developmentand the banking logics in the absence of institu-tional scripts for how to deal with the tensions

between these logics. The initial challenge for bothorganizations was to hire senior leaders. With noorganizations engaged in commercial microfinanceactivities, they had to identify management candi-dates who would be both able to handle the ten-sions between the banking and the developmentlogics and willing to assume the career risk of join-ing an organization that did not match any existingorganizational archetype.

Another challenge was to find individuals whocould serve as loan officers. As mentioned earlier,microfinance differs from conventional lendinginthat loan officers are expected not only to sell loans

4 For example, a heavy storm can flood an entireneighborhood, making it difficult for poor entrepreneursto bring their goods to market and thus repay their loans.

TABLE 1Comparison of the Banking, Development, and Emerging Commercial Microfinance Logicsa

Characteristic Banking Logic Development LogicEmerging Commercial Microfinance

Logic

Goals Deriving a rent or profit Development and povertyalleviation

Increasing the access of thedisenfranchised to financial serviceswhile fulfilling fiduciary obligationstoward depositors and investors

Target population

Clients are customers andseen as more or less riskysources of income

Clients are beneficiariesand seen as more or less“deserving” of support b

Clients are customers and seen asmicroentrepreneurs

Management principles

Maximizing profit whilefulfilling fiduciaryobligations not only toinvestors but alsodepositors

Maximizing the impact of donor funds ondevelopment andpoverty alleviation

Striking a balance between maximizingaccess of the disenfranchised tofinancial services and fulfillingfiduciary obligations to depositors andinvestors

a This table is based on Otero and Rhyne (1994) and on our interviews. b The notion of “deserving” derives from the argument that funds are limited, and thus monies should be directed either to those individuals

in the most need or, in the case of economic activities, to those with the highest multiplication effect.

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to potential borrowers, but also to evaluate these bor-rowers’ repayment capacity; to define (with the bor-rowers) the sizes of the loan requested; frequently, toapprove the loans (as part of lending committees);and to collect loans in arrears (see Churchill & Frank-iewicz, 2006; Roodman & Qureshi, 2006). This un-precedented combination of responsibilities required

of loan officers is considered crucial to guarantee thatthe organizations will reach their target populationand will not give loans to borrowers who cannotrepay them.5 Loan officers thus had to possess a va-riety of skills never before requested from a singleindividual. “Not just anyone can do the job,” ex-plained Los Andes’ operations manager. “You have tohave . . . human sensitivity and you have to be firm.You have to like working in the field and be okayworking with the profile of people with which wework” (interview, April 1997). The required profile of loan officers is “subtly contradictory and not always

found in the same person” (Roodman & Qureshi,2006: 22).In Bolivia, loan officers had to be able to speak

Aymara and Quechua; Spanish is typically a secondlanguage among the poor. The job was also physicallyand emotionally demanding, requiring candidateswilling to work rain or shine, to be in crowded streetmarkets promoting loans in the morning and to enterthe urban sprawl in the afternoon, seeking to evaluate

businesses’ and families’ wealth in order to gauge borrowers’ creditworthiness. Also, the loan officers of BancoSol and Los Andes needed to spend their eve-

nings performing what was perhaps the most difficultpart of their job, visiting delinquent borrowers (thosewith loans in arrears). With the collateral for loanslargely not fungible (i.e., not easily converted to cashfor repayment) because of both its nature and the lackof a reliable system of contract enforcement, loanofficers had to be able and willing to negotiate, cajole,and engage in outright conflict with delinquent

borrowers.Up until 1997, BancoSol provided exclusively

group loans, thus relying on group members’ promiseof repayment of each member’s loan as collateral, andLos Andes provided individual loans, relying on in-dividuals’ personal property (e.g., household furni-

ture, appliances, or farm animals) as collateral.6 Since both forms of collateral were similarly not fungible inthe context of an overburdened and weak judicialsystem, the loan officers of both organizations madeevery effort to collect payments from delinquent bor-rowers before attempting to claim the collateral. Bothorganizations used practices such as visiting de-

faulted borrowers and trying to embarrass or convinc-ingly threaten them into paying. For example, oneembarrassing practice was placing a bright orangesticker on the door of a defaulted borrower. In anotherexample, a loan officer from BancoSol explained howshe had befriended a local policeman and convincedhim (although not in his official capacity) to accom-pany her when visiting particularly reticent defaulted

borrowers (a practice also used by Los Andes’ loanofficers).

In interviews, loan officers from both organizationsdescribed collections as the worst part of the job. As aLos Andes’ loan officer noted, “It is very hard whenyou are collecting on a loan and they have put thefamily sofas and the TV as warranty and you come topick them up and the kids are crying” (field notes).Loan officers confessed to being particularly afraid of the dogs that every delinquent borrower seemed tohave. “You do not see the dogs when you give themthe loan,” observed a loan officer, a petite womanabout 4 feet 9 inches tall, “but they are there andcome out barking when you come to collect” (fieldnotes, March 1998). She explained that loan officersoften helped each other, frequently working in pairswhen making collections.

At the time BancoSol and Los Andes were hiring,few candidates were likely to have all the skills re-quired to be loan officers. Those who spoke the lan-guage and felt comfortable with the poor tended tohave little background in financial analysis and tofind it difficult to collect late payments and defaultedloans. Those with the skills needed to analyze cred-itworthiness had never ventured into the urbansprawl or imagined their job to be collecting loans inthe face of snarling dogs and crying children. The two

5 The pratice of combining responsibilities contrastssharply with the commercial model for the provision of small loans used by credit card and consumer lenders.The commercial model calls for strict division of labor

between sales, analysis, and collection; uses offsite, sta-tistics-based models to analyze borrower default risk;and uses the fees and penalties charged to tardy anddefaulting borrowers as important sources of revenue.

6

In both group and individual lending, loans are madeto people individually. The difference is the collateral. Ingroup loans, the joint and several commitment of all of agroup’s members to repay each member’s loan is ac-cepted as secure collateral of the loan under the assump-tion that borrowers will only join a group when they arecertain that all its members will be willing and able torepay their loans. In individual lending, the lender ac-cepts any good as collateral, assuming that individualsdo not want to part with their few possessions; unlikepawnshops, microfinance lenders do not take borrowers’goods into the lenders’ possession for the duration of theloan.




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organizations used remarkably different strategies torespond to this challenge.

COMBINING DEVELOPMENT AND BANKINGLOGICS: BANCOSOL’S APPROACH

BancoSol-NGO’s first CEO, Francisco “Pancho”

Otero, was a charismatic Bolivian social activistwho had been educated in the United States and built an organization, BancoSol-NGO, which hadsucceeded beyond anyone’s expectations. Ban-coSol-NGO possessed what organization membersand observers described as “la mı́stica” (a Spanishterm used to describe organization members’ senseof ownership and commitment to the mission of their organization [Fidler, 1998]). Otero’s biggestchallenge soon became keeping up with BancoSol-NGO’s explosive growth. Donor funds were hope-lessly insufficient, and access to bank funds wasinadequate. A top manager at BancoSol-NGO ex-plained that when banks declined to accept theorganization’s loan portfolio as collateral, recoursehad to be taken to the personal wealth of Otero, hisstaff, and the board.

It was this situation that inspired BancoSol-NGO tospin off a commercial microfinance organization. Ot-ero believed that the transition to a commercial mi-crofinance organization did not entail a radicalchange of mission. “Yes,” he conceded, “the backoffice changed radically, and the Superintendence[local banking regulatory authority] required us toobtain signed loan contracts and promissory notes. It

is true that we did not have to do that before, but ourmission was the same” (interview, March 24, 1998).Nevertheless, the transition had consequences for theorganization’s ability to retain its hybridity and re-main competitive in Bolivia’s burgeoning microfi-nance sector.

Hiring: Prioritizing Individuals’ Capabilities inSelection Decisions

Otero drew BancoSol’s initial staff of approxi-mately 96 from BancoSol-NGO. They were “social

workers, teachers, sociologists, graduates from theschool of life, ex-nuns and priests, Trotskyites andtheologians” (Rhyne, 2001). Otero’s reasoningwhen he hired these individuals was that theywould be the most willing to work with the targetpopulation. “Very few people would be willing tosit in the street . . . next to a lady selling tomatoesand ask her information sitting on the floor” (inter-view, April 23, 1998). Among the 96 individualswho transitioned from BancoSol-NGO to BancoSolwere early hires Otero had identified using the“incubator technique”—that is, asking hires with a

good profile to identify others like them (Fran-kiewicz, 2001). Later, BancoSol adopted a formalhiring system. All candidates went through the hir-ing process described by a middle manager in hu-man resources as follows:

From 400 applications, BancoSol hires four, five, orsix people. First, we go through the applications and

ask some to take a test, then we check whether theyhave the “social mentality” [willingness to workwith street vendors]. They have an interview with apsychologist, and finally an interview with thegroup they are going to be working with. Once se-lected, new hires spend a three-month testing pe-riod after which they are hired permanently. (fieldnotes, April 11, 1997)

Whereas BancoSol-NGO hired almost exclu-sively individuals with backgrounds in develop-ment areas, BancoSol’s hiring system resulted, inthe words of one interviewee, in the hiring of “in-

dividuals with backgrounds in finance, auditing,economics, social work, law, and lots and lots of anthropologists and sociologists” (interview, April11, 1997). Those with backgrounds in social work,anthropology, and sociology had capabilities moresuited to working with the poor, but those with

backgrounds in finance, auditing, law, and eco-nomics had capabilities more suited to lending.

This hiring system was not used to select managers, but selection decisions for managers also ended upprioritizing candidates’ capabilities. Internal promo-tion was the favored system for choosing middlemanagers (i.e., managers of regional and local offices).This preference reflected the lack of external candi-dates, BancoSol’s faith in its own training system,and a desire to exploit its potential to gain the com-mitment of the staff. Positions up the career ladderwere publicized within the organizations, and all em-ployees could apply. Decisions on whom to promoteto manager positions were mainly based on interper-sonal assessments of individuals’ capabilities andreadiness to move to the next level. A middle man-ager in human resources explained:

There could be CVs sent from anywhere within Bo-livia for a manager position in an agency here in LaPaz. We decide based on their CV and on conversa-tions with their coworkers. Still, there is so muchinteraction among employees [through the trainingand annual retreats] that many times we know, be-forehand, who is going to be promoted. (interview,April 11, 1997)

For headquarters’ management positions, Ban-coSol by and large retained the cadre groomed inBancoSol-NGO. In 1992, BancoSol’s first year of operation, five of the seven individuals in seniorleadership positions were early hires who had



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joined BancoSol-NGO at its founding and workedas loan officers for the first three months of opera-tion. The other two, who were new, had back-grounds and experience in conventional banking.They were hired to assume senior positions, namely,liability management and internal control, for whichthere were no trained internal candidates. The deci-

sion to hire these two outsiders was consistent withBancoSol’s selection approach, which ended up pri-oritizing individual capabilities.

The following year (1993), because BancoSol washaving difficulty complying with demands from Bo-livia’s regulatory authorities, the board decided torecruit a deputy general manager to support Otero. A

banker with more than 20 years’ experience workingin Citibank Canada was hired to fill the position.Subsequently, more managers with conventional

banking backgrounds were hired into BancoSol’sheadquarters. Whereas in 1992, four of the six man-agers at BancoSol headquarters had come from Ban-coSol-NGO and had social worker backgrounds, by1996 the ratio had dropped to one out of five, and all

but the marketing director had work experience inconventional banks.

Socialization: Socializing Members throughCommitment to the Organization’s End Goal

In an interview, Otero described the secret of BancoSol’s success as “converting social workersinto bankers and bankers into social workers.” He

believed that it was the only way for commercial

microfinance organizations to succeed in sustain-ing their hybrid nature. To do so, he relied onsocialization processes and systems designed to de-velop commitment to the end goal the organizationwas pursuing (i.e., its mission). The training pro-grams, promotion processes, and incentive systemsused to socialize BancoSol’s employees were in-spired by a variety of management ideas to whichBancoSol leadership had been exposed, includingDeming’s “TQM principles,” Maslow’s “pyramid of needs,” and Paolo Freire’s ideas on learning. Al-though the cost was substantial, Otero saw training

and communication programs as crucial.BancoSol adopted the system developed in Banco-Sol-NGO whereby all employees received trainingat the time of joining and, to round out their skillsets, throughout their careers. Initial training, themost intensive, was delivered during a two-weekorientation conducted when someone was hired.During the first week, new hires were placed in aclassroom setting and received not only technicaltraining in loan promotion, evaluation, and collec-tion, but also cultural training aimed at gainingtheir commitment to the organization’s mission.

During the second week, they received hands-ontraining in the office in which they were to work.Employees who completed the orientation at-tended a follow-up seminar each year for the nextfive years and were offered at least one additionaltraining opportunity each year in an area defined inconversations with the department of organization-

al development. The follow-up training programsenabled BancoSol to address hires’ different needs.“For those coming from the ‘social areas,’ the em-phasis was on the technical aspects of lending, andfor those with backgrounds in the ‘economic area,’the emphasis was on the social aspects of the job”explained a human resources middle manager (in-terview, April 11, 1997).

Otero complemented these training programs withhis tireless personal efforts to communicate to all staff members, from those performing the most menialjobs to those with managerial responsibilities, that“they were doing the most important work in thecountry” (Rhyne, 2001: 75). To overcome some of theprejudices employees with a social background

brought to working for a lending institution, Oteroemphasized how BancoSol differed from and was

better than (in terms of its social change agenda) con-ventional commercial financial institutions. He de-veloped and posted a list of 30 things a bank did thatBancoSol did not (Rhyne, 2001). For example, if con-ventional banks kept unwashed people out of theiroffices, BancoSol would welcome them; if only Span-ish was spoken in conventional banks, Aymarawould also be spoken at BancoSol.

In addition, BancoSol’s promotion policy affordedopportunities for employees to progress to middlemanager positions. A human resource middle man-ager described the progression of a typical careerwithin the organization:

The career ladder is different depending on the pro-file of employees. A cashier has the opportunity to

become cashier manager within the branch, but willnot progress to headquarters because there is onlyone treasurer. The other option is for this cashier to

become a credit assessor [BancoSol’s term for loanofficers]. Credit assessors progress from 3, 2, 1, andthen they can become agency [branch] deputies andthen agency managers. Who progresses depends onannual personal evaluations and, of course, on thegrowth of the organization. (interview, April 11,1997)

BancoSol’s top managers found it important toalign employee career paths and incentive systemswith the mission of affording clients (regardless of income or ethnicity) opportunities to better them-selves. Until 1996, BancoSol did not use any per-formance-based incentives, relying instead on itslofty mission to generate motivation and commit-




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ment among its employees. In 1995 the averagestarting annual salary among BancoSol loan offic-ers was US$3,120 a year (about US$260 a month),which is 4.1 times the Bolivian GDP per capita(Fidler, 1998). A paid incentives system wasadopted in 1996, but it was related to the collectiveperformance of the branches and not to individual

performance. In 1997, only 10 percent of the em-ployees’ compensation was dependent on the per-formance of the branch in which they worked (Mi-crorate, 1998a).

Dueling Logics and Identity Schisms

BancoSol’s mission-based approach succeededin garnering commitment to the mission of the or-ganization but did little to alleviate a growing iden-tity schism between carriers of the developmentand the banking logics. Although they worked side

by side, the two groups began to polarize as theysteeped in their respective logics of reference, thusexacerbating the differences between them.

Throughout the organization, staff with socialworker backgrounds blamed staff with banking back-grounds for the increasing number of control proce-dures being adopted, which they saw as unduly con-straining their work. For example, new rulesprevented a staff member from stepping in as tellerwhen a regular teller took the day off or left to run anerrand. Employees with a social worker backgroundargued that employees with a banking backgroundwere obsessed with administrative procedures and

did not understand the nature of microfinance. Inturn, staff members with banking backgrounds la-

beled those with social worker backgrounds “danger-ous idealists” who did not understand the function-ing of financial institutions and whose practicesthreatened BancoSol’s survival. “I constantly dis-agreed with the new hires from BBA [a conventional

banking establishment],” recalled a manager with asocial work background. “I would tell them: ‘You donot understand this business; you just arrived.’ Andthey would tell me: ‘You know nothing about bank-ing, and they are going to send you to jail for your

sheer stupidity’” (interview, April 23, 1998). Anotherarea of friction between the dueling logics arose ininternal discussions regarding the idea of staff uni-forms, proposed by people with banking backgroundsand resisted by those with social worker

backgrounds.Between 1992 and 1996, the rift between carriers of

the banking and the development logics assumed theproportions that organizational demographists char-acterize as a “fault line,” a division between organi-zation members exacerbated by the alignment of ba-sic sociodemographic and cultural attributes (Lau &

Murnighan, 1998; Pfeffer, 1983). BancoSol employeeswere divided like oil and water (Glosser, 1994) as towhether the organization’s procedures, such as strictdivision of labor between loan officers and cashiers orthe need to wear uniforms, would impede its abilityto serve its development mission while fulfilling itsfiduciary obligations. BancoSol had thus not man-

aged to create an organizational identity that enabledit to handle the tensions between the developmentand banking logics. Instead, it experienced an intrac-table identity conflict that reached crisis proportionsin mid 1996, when the impasse made it impossible tooperate effectively. At that time, the board asked Ot-ero to resign and the deputy general manager, whohad a banking background, assumed leadership. Em-ployees with development backgrounds—in particu-lar, many of the ex-BancoSol-NGO staff—began to bepruned from the organization. Some left voluntarily.Others left after being transferred to remote parts of the country. By 1998, only a handful of ex-BancoSol-NGO employees continued to work for BancoSol.

BancoSol was thus forced to change most of itsstaff, which led to the loss of valuable experience andsignificantly slowed its growth. Evidence can be seenin Table 2, which traces the operational evolution of the organization. Between 1999 and 2002, the num-

ber of active borrowers decreased by 30 percent, andthe annual gross portfolio dropped by 9 percent. Thecrisis also hindered decision making in critical areas,such as changes to the performance-based incentivesystem for loan officers and to the type of loan prod-uct offerings, at a time critical in the development of

microfinance in Bolivia (interview, August 2009).The rift between carriers of the banking and the de-velopment logics disappeared only after a completerevamping, when a new leader, a native of La Pazwho had experience as a manager in private bankingin Bolivia, was hired in 2001.

COMBINING DEVELOPMENT AND BANKINGLOGICS: LOS ANDES’ APPROACH

The 1995 launch of Los Andes followed that of BancoSol by about three years. When establishing

Los Andes-NGO in 1992, the founders alreadyplanned to spin off a commercial microfinance or-ganization within one or two years. Los Andes wasthus able to use BancoSol’s experience as a bench-mark for its own decision making, which mightexplain, at least in part, why Los Andes avoidedsome of the problems BancoSol experienced. Ac-cording to Los Andes 1998 annual report, a focuson long-term operational success that would enablethe organization “to reconcile its social goals withderiving an economic yield” was at the heart of itsvision for sustaining a balance between the devel-



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opment and banking logics. Its hiring and social-ization policies were consistent with this long-runapproach to balancing logics.

Hiring: Prioritizing Individuals’ Socializability inSelection Decisions

Los Andes, like BancoSol, needed to hire indi-viduals educated enough to be able to accomplishthe tasks performed by a commercial microfinanceorganization. But it adopted a very different ap-proach, prioritizing hiring individuals without

working experience and thus not steeped in eitherthe banking or the development logic. The rationalewas that these individuals would be socializedwith less difficulty into an organizational identitythat balanced the two logics. Los Andes leadershipthus decided to hire recent university graduateswith the basic technical background required forloan evaluation (e.g., auditing, accounting, and

business). One manager explained the need to “hirepeople directly from the university. . . . It is easierto acclimate them to the characteristics of the or-ganization. It is harder when they come and they

try to frame our work within their working mentalschemes” (interview, March 31, 1998).

In May 1995, Los Andes-NGO transferred most of its personnel, about 50 individuals, into Los Andesfor the launch. Like BancoSol, Los Andes continuedto use the hiring system developed for its originalNGO. But unlike BancoSol, its selection criteria didnot prioritize hires’ capabilities, but rather their so-cializability. The willingness to sacrifice capabilitiesfor socializability derived from top management’s be-lief that preconceived notions would present the big-gest obstacle to developing the behaviors required to

strike the desired balance between the developmentand banking logics. The increasingly visible problemsat BancoSol helped reinforce Los Andes emphasis onhiring inexperienced people, as did the experience of IPC, the international development organization thatwas advising Los Andes, in its efforts to change or-ganizations in other countries. These efforts had con-vinced IPC’s staff that it was easier to groom individ-uals with little professional experience than tochange the views of those who had previouslyworked in other organizations. “You need to hirepeople you can manage,” remarked a member of Los

TABLE 2Operational Evolution of BancoSol, 1996–2002a

Characteristic 1996 1997 1998 1999 2000 2001 2002

Gross portfolio(US$ mil.)

48.7 66.5 74.1 82.3 77.5 74.4 75.7

Active borrowers(in thousands)

71.8 76.2 81.6 73.1 67.1 61.3 50.9

Number of branches 33 35 40 42 37 35 34Number of

employees473 490 630 629 554 506 503

Loans per employee 152 156 130 116 121 121 101

Average loan(US$)

678 873 908 1,126 1,155 1,214 1,487

Portfolio at risk30 days b

2.60% 1.23% 3.03% 5.48% 9.58% 10.16% 6.61%

Gross portfolio retailand servicesc

99% 99% 99% 92% 87% 78% 81%

Gross portfolioagriculture andlivestockc

0% 0% 0% 1% 1% 8% 4%

Gross portfoliomanufacturing andotherc

1% 1% 1% 7% 12% 14% 15%

Cost per borrower(US$)

n.a. n.a. 149 164 174 166 170

Return on equity 15.0% 29.5% 29.0% 9.7% 3.9% 0.4% 1.8%

a This table is our elaboration of information from Bolivia’s government (ASSF, 2009), Mixmarket (2009a, www.mixmarket.org), andChu (2007).

b BancoSol’s and Los Andes’ portfolios at risk 30 days fell after 2002 (in December 2008 it was 0.99% for BancoSol and 1.65% for LosAndes).

c These percentages were calculated from information provided by Bolivia’s ASSF about the destination of loans. (From 1996 to 1998, thisratio was not available; as a proxy we used information on loans depending on the economic activity of clients.)




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Andes’ board of directors. “I believe it is one of theorganization’s strengths. Not in the bad sense, insteadthinking that you can condition them to the criteria,you can guide them” (interview, March 27, 1998).

In keeping with this approach, Los Andes’ adver-tisements for positions targeted individuals withoutworking experience. To get the job, respondents had

to go successfully through the highly formalized andselective hiring system that had been developedwithin Los Andes-NGO. The process included an ini-tial screening of CVs, an exam, a training course, anda test period in the field. A top manager described itas follows:

We get about 300 applications. We have 11 open-ings. First, we make them take an exam. Then theytake a one-month course, and then we have an eval-uation. . . . Then we make them work as the shadowof another officer for about another month, and thenthey have three months to build their own portfolio.

(interview, April 1997)

This process was time-consuming and expen-sive, but it was highly effective. Individuals se-lected had a sense of being the best among theapplicants; only a few of those hired left, and onlywhen first exposed to the hardships of selling, eval-uating, and collecting loans in the urban sprawl.The system had some similarities with BancoSol’s,with two crucial differences: (1) Los Andes priori-tization of the socializability of individuals overtheir capabilities, and (2) its almost exclusive reli-ance on exams rather than interviews and interper-

sonal evaluations for selecting candidates. LosAndes’ employees praised the transparency

brought to the selection process by its reliance onexams, which they valued because it limited theopportunity for nepotism and discrimination.Many had indigenous backgrounds and were ac-customed to their ethnicity being an obstacle totheir professional progress. At the time the inter-views were conducted, a story circulating in theorganization was that of the unexpected and imme-diate firing of a trusted manager who was discov-ered to have hired a relative for an administrative

assistant position. This firing became symbolic of Los Andes’ commitment to a merit-based system of hiring, which stood out in the Bolivian context,where nepotism was rampant and career advance-ment depended more on last name and personalconnections than on individual merits.

Los Andes’ long-run perspective and its concernwith socializability and thus its preference for juniorhires also extended to managerial positions. LikeBancoSol, it chose to rely on internal promotion to fillmiddle manager positions. It also anticipated a con-tinuation of the organization’s top management, but

general manager and cofounder Pilar Velasco decidedfor personal reasons to retire from day-to-day opera-tions and assume a position on the board of directorswhen Los Andes was created. IPC successfully advo-cated the creation of a German-style joint generalmanagement committee made of three managers toreplace Velasco. In keeping with Los Andes’ priori-

tizing of candidates’ socializability, the individualshired for the positions had to be relatively junior. Onemanager would assume responsibility for investor re-lations. The person hired was a woman who had beenemployed as a part-time accountant in Los Andes-NGO and whose experience in working with inves-tors was limited to her work in a program that pro-vided donor-funded development loans to banks.Another manager would assume responsibility forthe area of loans. The woman hired had worked in afinancial institution but had never held a managerialposition. The third manager was to assume responsi-

bilities in the area of general administration. The manhired had but four years of working experience inBolivia’s Superintendence of Banks (the country’s

banking supervisory body) as an auditor of financialinstitutions. A special training program was devel-oped to groom all three managers, which included alengthy stay (about three months) in an IPC-con-nected organization in Peru.

The resulting three-person committee wasthought to have the potential to assume leadershipfor the organization in the long run. In the mean-time they could benefit from IPC’s technical assis-tance through the presence of an onsite IPC con-

sultant, Pedro Bonjour Arriola, who would shadowthese junior managers until they had grown intotheir positions. Ultimately, this did not happen;Los Andes abandoned the three-person committeemodel in 1998 and hired the consultant as generalmanager. Born and trained as an auditor in Uru-guay, he had spent the largest part of his careerwith IPC. This was his first managerial position andhis first job running a financial institution.

Los Andes commitment to hiring individuals withlittle or no work experience was not without cost,most notably, for its pace of geographic expansion. Its

delayed entrance into the Santa Cruz market is symp-tomatic. (In 1998, the branches of financial institu-tions located in the department of Santa Cruz pro-vided 44 percent of the funds loaned in Bolivia; thesecond largest was the department of La Paz, with 34percent). Although BancoSol opened an office inSanta Cruz as early as 1992, Los Andes arrived onlyin 1999. Los Andes leadership was willing to sacrificepart of the growth because of its commitment to itsphilosophy of hiring junior workers and managers.Facing demand for loans as explosive as that faced byBancoSol, it consciously limited the speed of opening



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The same interviewee, when pressed by the inter-viewer to explain why this was so, considering thehardships of the job, responded that most person-nel losses occurred during the first week in thefield, when hires realized the difficulties the jobinvolved, at which point 30 to 40 percent of hirescould be lost. After that, people stayed because the

organization offered an excellent employment op-tion in the Bolivian context.Creating a shared identity based on operational

excellence seems to have enabled Los Andes to strikea sustainable balance between the development and

banking logics and to avoid mission drift. Los Andes,which has remained competitive and profitable, hascontinued to expand its hybrid mission of increasingthe access of the poor to financial services whilefulfilling fiduciary obligations (see Table 1) Compar-ing Table 3, which traces Los Andes’ history, withTable 2 (on BancoSol) shows that at the turn of thecentury, Los Andes had lower average loans and alower percentage of delinquent loans than BancoSol.Higher values on either measure are considered indi-cators of mission drift (Mersland & Strøm, forthcom-ing). Los Andes’ average loan had grown, but it was

still around $1,000 and well under the average loanfor Bolivia’s formal financial institutions(US$17,043). Los Andes had also lowered its interestrates at a faster pace than BancoSol, according toCIPAME and FINRURAL (1997, 1998, 1999).7 Its per-centage of delinquent loans, although it spiked inlater years because of increasing competition and the

harsh impact in Bolivia of the Asian crisis, was onaverage below 5 percent and, as of December 2008, ithad only just topped 7 percent (peaking at 7.03 in2002). In this same period, BancoSol’s average delin-

7 Lending to the poor is labor intensive. The interestrates commercial microfinance organizations need tocharge to recover their costs and remain profitable are

quite high. In 1998, BancoSol charged interest rates rang-ing from 25.5 percent to 48 percent, and Los Andescharged interest rates ranging from 16 percent to 42 per-cent (ASOFIN, 2005; also, an electronic communicationwith Los Andes).

TABLE 3Operational Evolution of Los Andes, 1996–2002a

Characteristic 1996 1997 1998 1999 2000 2001 2002

Gross portfolio(US$ mil.)

11.9 20.5 28.6 36.2 46.7 50.3 62.1

Active borrowers (in

thousands)

22.8 27.9 32.5 36.8 41.7 43.5 47.0

Number of branches 9 11 15 16 17 20 26Number of

employees110 143 213 270 313 377 457

Loans per employee 207 195 153 136 133 115 103

Average loan(US$)

522 735 880 984 1,120 1,156 1,321

Portfolio at risk30 days b

4.11% 3.55% 6.18% 4.16% 5.44% 6.26% 7.03%

Gross portfolio retailand servicesc

n.a. 74% 65% 69% 72% 71% 76%

Gross portfolioagriculture andlivestockc

n.a. 1% 6% 6% 5% 9% 7%

Gross portfoliomanufacturing andotherc

n.a. 25% 29% 26% 23% 20% 18%

Cost per borrower(US$)

n.a. 93 109 128 138 147 168

Return on equity 15.0% 36.0% 27.5% 13.6% 13.9% 14.7% 18.3%

a This table is our elaboration of information from Bolivia’s government (ASSF, 2009), Mixmarket (2009b), and Los Andes’ annualreports (several years).

b BancoSol’s and Los Andes’ portfolios at risk 30 days fell after 2002 (in December 2008 it was 0.99% for BancoSol and 1.65% for LosAndes).

c These percentages were calculated from information provided by Bolivia’s SBEF about the destination of loans. (From 1996 to 1998, thisratio was not available; as a proxy we used information on loans depending on the economic activity of clients.)



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quency rate was 5.53 percent, and it passed the 10percent threshold in 2001.8

Another interesting indicator of Los Andes’ sus-tained commitment to its hybrid mission is the intro-duction and continued growth of a new lending pro-gram targeted at farmers (see Table 3). Because of their high concentration and rapid business cycle,

retail and services borrowers are easier to reach (i.e.,more highly concentrated) and thus relatively moreprofitable. Farmers are among the most difficult toreach populations and this, together with long pro-duction cycles and dependence on weather condi-tions, translates into higher costs and higher risk of defaults. As of 1999, the farm lending program hadyet to turn any profit; nevertheless, Los Andes hadexpanded its portfolio to reach a vast and sorely un-derserved population.

While sustaining its social mission, Los Andes alsoremained a profitable financial intermediary able tofulfill its fiduciary obligations, with most of its prof-itability deriving from its growth and operational ef-ficiency. Between 1997 and 2002, Los Andes’ opera-tional costs per borrower (which include personnel,depreciation, and administrative costs) remained be-low those of BancoSol (168 versus 170 US$ per bor-rower in 2002), and its return on equity was eithersimilar to or much higher than BancoSol’s in the lateryears (18.3 versus 1.8 percent in 2002).

Overall, by 1999, Los Andes had managed to createa common organizational identity based on operation-al excellence that enabled organization members tostrike a balance between the development and the

banking logics and avoid mission drift. BancoSol’sefforts, in contrast, translated into an intractable iden-tity conflict between carriers of the developmentlogic and carriers of the banking logic, which hin-dered BancoSol’s operations until 2002, when Ban-coSol began once again to grow, reduced its defaultrate, and noticeably improved its operations (Chu,2007). This change followed from the hiring of newleadership, which alleviated the rift between carriersof the development and the banking logics by stop-ping the intake of candidates with a social work back-ground, replacing BancoSol’s old guard, and adopt-

ing hiring and socialization policies similar to thoseof Los Andes (interview, August 26, 2009). As of December 2008, both Los Andes and BancoSol hadexpanded their operations and were considered to beamong the best commercial microfinance organiza-tions in the world (see Fernando, 2004).

HOW HIRING AND SOCIALIZATION AFFECTORGANIZATIONAL IDENTITY BUILDING IN A

NOVEL HYBRID

This study examined how two novel hybrids,BancoSol and Los Andes, met the challenge of

building and maintaining their hybrid nature. Ourfindings suggest that crucial to the sustainability of

novel combinations of logics was the building of anorganizational identity that struck a balance be-tween the logics being combined. Our first-orderinterpretations revealed that in both organizations,hiring and socialization strategies were crucial in theprocess of identity formation; however, Banco-Sol and Los Andes adopted very different hiring andsocialization approaches.

Hiring

Both organizations were highly selective abouthiring for all positions, particularly managers andloan officers. But their emphases, as summarized inTable 4, differed substantially. BancoSol’s hiringsystem prioritized candidates’ capabilities (i.e., ei-ther for working with the poor or for lending) oversocializability, disregarding whether hires weresteeped in the development or banking logics. Thisemphasis on candidates’ capabilities eventually ex-acerbated the tensions between the developmentand banking logics in the organizational ranks, ascarriers of the two logics polarized around what setthem apart instead of what they shared. In contrast,

Los Andes’ decision to prioritize socializability inits hiring decisions facilitated the building of acommon organizational identity based on opera-tional excellence, which enabled the organizationto strike a balance between the development and

banking logics.In light of this evidence, we can speculate that new

types of hybrid organizations might adopt two differ-ent hiring approaches: a “mix-and-match” approachand a “tabula rasa” approach. The mix-and-matchapproach prioritizes individual capabilities andtherefore leads to hiring people who are carriers of the

logics the organization is attempting to combine; thetabula rasa approach emphasizes socializabilityabove all, thereby prioritizing individuals not steepedin either of the logics being combined. The mix-and-match approach may enable a new organization togrow faster, but as seen in the case of BancoSol, itmay also generate paralyzing tensions between sub-groups who define themselves in opposition to eachother (Dukerich, Kramer, & Parks, 1998; Elsbach,1999), and it is thus likely to produce intractableidentity conflicts (Fiol, Pratt, & O’Connor, 2009). Thetabula rasa approach may facilitate the development

8 Its default rate fell consistently after that, and as of December 2008, 10.16 percent was the highest defaultrate that BancoSol had ever experienced (Mixmarket,2009a).




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of a common identity among organization members,enabling them to strike a balance between the logics

being combined, but it may necessitate controllinggrowth, which can be difficult when, as in the casesstudied, demand is quite high.

Socialization

It is hard for any organization to socialize indi-

viduals into a desired set of behaviors and values(Goffman, 1961), but it is especially so for novelhybrid start-ups without access to readymade so-cialization processes and systems (Wolfe Morrison,2002) and already socialized insiders or recruitswith existing job experience (Adkins, 1995). In thiscontext, both organizations devoted substantial re-sources and attention to communication as well astraining, promotion, and incentive systems, whichare the key design factors that can be leveraged toteach and reinforce the behaviors and values de-sired in organization members (Feldman, 1976,

2002; Gómez, 2009; Jones, 1986; Saks & Ashforth,1997). But differences in the two organizations’ hiringdecisions implied somewhat different challenges foreach with respect to socializing members into a de-sired set of behaviors and values so as to build andmaintain hybridity. Table 5 summarizes BancoSol’sand Los Andes’ different socialization approaches.

Less concerned about the dominant logic that de-fined its hires’ potential preconceptions (whether de-

velopment or banking) than about the capabilitiesthey brought, BancoSol tailored its training to ad-dress lack of expertise in how to “provide loans” or“serve the poor.” Otero was confident that organi-zation members would develop a shared identity,independent of their background, through social-ization processes and systems that focused theirattention on the end pursued by the organization.This approach worked well to the extent that em-ployees did buy into the mission wholeheartedly,

but it failed to prevent the emergence of an intrac-table identity conflict between carriers of the de-

TABLE 4Hiring Policies at BancoSol and Los Andes

BancoSol: Prioritizing Capabilities Los Andes: Prioritizing Socializability

Hiring individuals with required capabilities regardless of whether they were steeped in the development or bankinglogics.

Hiring individuals with little or no work experience toavoid bringing in individuals steeped in thedevelopment or banking logics.

EmployeesCandidates recruited through advertising in newspapers.

EmployeesCandidates recruited through advertising in newspapers.

Preliminary selection based on the capabilities criterion:selection of candidates likely to have the desiredcapabilities.

Preliminary selection based on the socializabilitycriterion: Selection of candidates with little or nowork experience.

Preliminary testing (two or three exams). First exam testedabilities in the areas of spatial, mechanical, and numericreasoning, verbal logic, and comprehension. Second examtested abilities to work in teams, interact with others, andexercise leadership. If relevant, a third exam tested for thetechnical knowledge needed to carry out the responsibilitiesof the particular position.

Preliminary exam testing of abilities in the areas of spatial, mechanical and numeric reasoning, verballogic, and comprehension.

About three candidates per position were interviewed to assesstheir ability to do the job and their affinity with BancoSol’sculture.

Exam testing on content covered during an initialtraining seminar (see table 5).

Interview with the group with which they would be working. No further interviewing considered necessary.Three-month testing period after initial training seminar (see

Table 5), after which they were hired permanently. (Newhires were most likely to leave during this period.)

Three-month testing period, after which they were hiredpermanently. During the first month, they worked as“shadows” to a loan officer. (New hires were mostlikely to leave during this period.)

Managers ManagersManagers of regional and local agencies: Preference for

internal promotion.Managers of regional and local agencies: Preference for

internal promotion.Top management: Preference for internal promotion but

willingness to hire outsiders with the required capabilitieswhen internal candidates did not have them.

Top management: Preference for internal promotion butwillingness to hire junior outsiders to be groomedinternally for top management positions.



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velopment and banking logics as they grew intosubgroups increasingly intolerant of their differ-ences as to the appropriate way to serve this mis-sion. Even though hires steeped in the develop-ment logic had accepted and adopted manyconventional banking practices in the past, as thedifferences between the two subgroups grewstarker, those with development backgrounds be-gan to reject any new controls championed by hiressteeped in the banking logic. Eventually the con-

flict froze BancoSol to the point of inaction duringa time critical to its growth and competitive devel-opment. It is not possible to pinpoint whether theemergence of this intractable identity conflict wasdue to an intrinsic problem with its prioritizationof capabilities over socializability at the time of hiring, its end-focused approach to socialization, or

both. But our findings show that adopting an end-focused socialization approach was not effective atovercoming the tensions between individualssteeped in the different logics BancoSol was at-tempting to combine.

Los Andes approached socialization very differ-ently. In contrast to BancoSol’s gap-based approachto training, Los Andes adopted a fairly standardizedapproach, which is not surprising, considering thatits hires were all relatively inexperienced and therebynot assumed to possess any of the desired capabili-ties. Moreover, Los Andes’ long-term view of the end

being pursued by the organization resulted on itsfocusing, in the short run, on the means used toachieve that end. Consistently, its socialization pro-

cesses and systems, which focused on fostering com-mitment to the means used to accomplish the mis-sion, resulted in the creation of a commonorganizational identity based on operational excel-lence. By focusing members’ attention on excellencein the accomplishment of the work at hand in thehybrid organization, this common organizationalidentity prevented the emergence of subgroups withidentities that emphasized the tensions between thetwo logics.

As in the case of BancoSol, it is difficult to saywhether Los Andes managed to avoid the emergence

TABLE 5Socialization at BancoSol and Los Andes

Aspect BancoSol Los Andes

Approach Focusing organization members’ attention on the endpursued by the organization.

Focusing organization members’ attention onthe means used by the organization toachieve its end.

Training Initial training prior to hiring decision: One week of

training in the classroom and one week of hands ontraining.

Initial training prior to hiring decision:

Intensive training program. Initially onemonth, later reduced to two weeks.

Gap-based continuous training programs involvingclassroom presentations and group activities. Trainingprograms considered differences in background. Foremployees with a social work background, the emphasiswas on technical training; for employees with a banking background, the emphasis was on the social aspects of the job.

Continuous training programs involvingclassroom presentations and activities for allindividuals as well as specific seminars forindividuals seeking promotion.

Annual two-day retreats included all members of theorganization.

No recurrent annual retreats. The first annualretreat was organized in 1999.

Otero tirelessly and personally communicated the missionto all staff members.

Incentives Performance-based incentives first introduced in 1997.Incentives were connected to the collective performanceof the branches, not to the performance of individuals. In1997, only 10 percent of the loan officers’ totalcompensation was dependent on the performance of theagency where they worked.

Introduced at the outset a carefully designedand continually revised system of individualperformance-based incentives. In 1997, loanofficers could get as much as 105 percent of their base pay as incentives based onindividual job performance.

Promotion Best candidates identified through interpersonalevaluations.

Best candidates identified through exams androle playing tests.

Loan officers could expect to progress to regional managerpositions as the organization continued to grow andexpand.

Loan officers could expect to progress toregional manager positions as the organiza-tion continued to grow and expand.

Promotion was based on annual evaluations of performanceand on an internal application process in whichcandidates were evaluated based on their CVs andconversations with co-workers.

Promotion was based exclusively on exams.Candidates were asked to define solutions topotential situations they might face asmanagers.




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of an intractable identity conflict because of the pro-file of the people it hired, its means-focused social-ization approach, or both. Still, as explained earlier, itis interesting to note that, after a new leader took overin 2001, BancoSol adopted many of the hiring andsocialization policies developed by Los Andes; sohave other microfinance organizations in Bolivia (see,

e.g., ASOFIN, 2005) and worldwide (see Churchill &Frankiewicz, 2006; Roodman & Qureshi, 2006).

Different Hybridization Approaches

The findings from our analysis do not enable usto identify either the best combination, or all pos-sible combinations, of hiring and socialization pol-icies for identity building in new types of hybridorganizations. They do, however, enable us to de-fine two different approaches to hybridization,each associated with different risks and advantagesfor developing an organizational identity that canensure the sustainability of novel combinations of logics. The first approach, apprenticeship, whichwas adopted by Los Andes, combines a tabula rasahiring approach with a means-focused socializa-tion approach. We refer to this as an apprenticeshipapproach because it focuses on helping inexperi-enced hires learn a new occupation. As in the caseof Los Andes, the success of this model in devel-oping an organizational identity that can ensure thesustainability of unprecedented combinations of logics may derive from its ability to minimize therisk of tensions and conflicts by first hiring people

with few preconceptions regarding the functioningof organizations and then focusing their attentionon operational excellence. Its downside is that itmay require disciplined control of organizationalgrowth to allow staff members to learn the neces-sary skills to accomplish the work at hand. It mayalso need continued vigilance to assure that, asforeseen by Weber (1922/1978), in the long run,operational excellence does not become an end initself, thereby possibly superseding the original hy-

brid goal of the organization.The second approach, integration, which was

adopted by BancoSol, combines a mix-and-match hir-ing approach with an end-focused socialization ap-proach. It focuses on bringing together carriers of different logics to form a single integrated group com-mitted to the same superordinate goal, the hybrid goalof the organization. This integration approach mayenable new types of hybrid organizations to be opera-tional fast but, as the experience of BancoSol sug-gests, organizations that adopt this approach still runthe risk of members polarizing into subgroups whosedifferent identities emphasize the tensions betweenthe logics being combined. The leaders of novel hy-

brid start-ups that adopt this approach to developingan organizational identity that supports novel combi-nations of logics must pay close attention to the po-tentially harmful emergence of these subgroup iden-tities or, at least, find ways to tone down intergrouptensions and thereby avoid intractable identity con-flicts (Fiol et al., 2009).

DISCUSSION AND CONCLUSION

This article reports on a comparative inductivestudy examining how new types of hybrid organi-zations can build and maintain their hybridity. Ourresults first suggest that, to be sustainable, a novelhybrid organization needs to develop a commonorganizational identity that strikes a balance be-tween the logics the organization combines. Such acommon identity will prevent the emergence of subgroups whose different identities emphasize thetensions between the logics combined. The evi-dence further suggests that a tabula rasa hiring ap-proach may help an organization to reduce theinfluence of its institutional environment andthereby provide more freedom for socialization pol-icies to influence the process of identity building.Considering, in turn, the influence of socializationstrategies, our evidence suggests that a socializa-tion approach that is end-focused, even when suc-cessful in developing commitment to the end pur-sued by the organization, may be insufficient toprevent the emergence of intractable identity con-flicts among actors with preexisting mental sche-

mata for the practices appropriate to serving organ-izational goals. Finally, our findings suggest that asocialization approach that focuses hires’ attentionon operational excellence may be more effective indeveloping an organizational identity that strikes a

balance between the logics being combined.

Contributions

Our findings, although they require testing andfurther exploration, contribute to current efforts tofurther understanding of how actors enact multiple

institutional logics within the boundaries of organ-izations (Binder, 2007; Fine, 1995; Hallett, 2010). Incontrast to early institutional studies (Gouldner,1954; Selznick, 1949), institutional research con-ducted over the past two decades has largely ne-glected the intraorganizational level of analysis infavor of examining what happens in and betweenorganizational fields (Greenwood & Hinings, 1996;Hirsch & Lounsbury, 1997; Rao, Morrill, & Zald,2000). In most of these studies, organizations areviewed as unitary actors, and the frequency of, andinternal tensions generated by, multiple logics



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within them (Kraatz & Block, 2008) are overlooked.Our study bridges the intraorganizational and insti-tutional levels of analysis by accounting not onlyfor logic plurality within organizations, but also forhow organizational factors can influence the wayactors handle the tensions generated by such plu-rality. In bridging these different levels of analysis,

our study answers the numerous calls for cross-level research in institutional theory (e.g., Chreim,Williams, & Hinings, 2007; Powell & Colyvas, 2008).

More specifically, our findings highlight that in theabsence of institutional scripts for handling logic plu-rality, a new type of hybrid needs to develop a com-mon organizational identity that enables organizationmembers to strike a balance between logics. Our re-sults identify two sets of hiring and socialization ap-proaches that new types of hybrid organizations mayuse to influence the process of identity formation.Our study further highlights both the potential andlimitations of hiring and socialization when it comesto developing an organizational identity that can en-sure the sustainability of an unprecedented combina-tion of logics. Our evidence shows that an ideo-graphic organizational identity (Albert & Whetten,1985), in which different identities are associatedwith different subgroups in an organization, may gen-erate intractable identity conflicts in new types of hybrids, thereby hindering their sustainability.

Finally, in highlighting the importance of organi-zational identity for the sustainability of new types of hybrid organizations, our study contributes to bridg-ing between the institutional theory and organization-

al identity literatures. These two central streams of research in organization studies, though highly com-plementary, have so far evolved largely along sepa-rate tracks (Glynn, 2008; Pederson & Dobbin, 2006).Institutional studies have accounted for organiza-tions’ embeddedness in institutional environmentscharacterized by logic plurality but barely accountedfor how organizations internally manage such plural-ity. In contrast, studies of organizational identity haveexamined how organizations handle plurality, while

barely accounting for the influence of institutionalcontext on how actors handle it.

A few studies have begun to explore the link be-tween institutions and collective identities by show-ing organizational identities to be embedded in insti-tutional contexts (Baron, 2004; Glynn & Abzug, 2002).Researchers have recently called for further explora-tion of this link (Corley, Harquail, Pratt, Glynn, Fiol,& Hatch, 2006; Glynn, 2008; Pederson & Dobbin,2006). Our study contributes to this body of work byfocusing on the relationship between organizationalidentities and logics in the absence of organizationalarchetypes. It emphasizes that the generation of newidentities does not occur in an institutional vacuum

(Weber & Glynn, 2006) but builds on, or is hindered by, tensions, overlaps, and cracks among logics. AsSelznick (1949) suggested, organizations that succeedin curbing outside institutional pressures by forgingidentities that support novel logic combinations maysubsequently contribute to creating a new organiza-tional archetype, thereby effectively acting as institu-

tional entrepreneurs (Battilana, Leca, & Boxenbaum,2009; Dorado, 2005).

Limitations and Future Research Directions

It would be tempting to conclude from our find-ings that the apprenticeship approach is particu-larly effective at producing a common organization-al identity that sustains the unprecedentedcombination of development and banking logics incommercial microfinance. It will be interesting,however, to continue observing BancoSol, LosAndes, and other commercial microfinance organ-izations, to identify whether relying on a socializa-tion approach that focuses attention on operationalexcellence creates the risk, suggested by Weber(1922/1978), of making means supersede mission,thereby possibly preventing these organizationsfrom retaining their hybridity in the long run.

Future research also needs to examine the influ-ence of the degree of divergence between logics onthe development of organizational identities able toensure the sustainability of unprecedented combina-tions of logics. It might be that the apprenticeshipapproach is most suitable when there is a high degree

of divergence between the logics combined, as wasthe case for the banking and development logics. Buthybridization approaches that rely on a mix-and-match hiring approach may work better when a hy-

brid organization combines less divergent logics.Moreover, it is possible that an end-focused socializa-tion approach, which failed to prevent the emergenceof an intractable identity conflict within BancoSol, ismore effective when the logics being combined areonly mildly divergent.

Similarly, there is a need for research exploring thegeneralizability of our results to mature hybrids. Pre-

vious research suggests that mature hybrids may haveideographic organizational identities without neces-sarily facing intractable identity conflicts (Albert &Whetten, 1985; Pratt & Foreman, 2000). It may thus bethat once they have become established, hybrid or-ganizations can afford to have ideographic organiza-tional identities without jeopardizing their stability.Accordingly, future research should explore whethernovel hybrids that have matured and gained legiti-macy can change their hiring and socialization strat-egies without jeopardizing the delicate balance be-tween the logics that they combine. For example, they




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may be able to adopt an “integration” approach,which was the one adopted by BancoSol, withoutrisking the emergence of intractable identity conflicts.

Moreover, as new types of hybrids attain maturity,organizational processes and systems other thanthose explored here may crucially influence organi-zational identity. Further examination is needed of

the influence on the process of identity building inhybrid organizations of factors such as founder back-ground (already shown to influence organizationalidentity in the case of organizations that embody es-tablished archetypes [Baron et al., 2001]) and the paceof organizational growth. Overall, more comparativestudies are needed to gain a finer-grained understand-ing of the influence of organizational factors on theprocess of identity construction in hybrid organiza-tions as they mature.

Finally, in reporting on a study of two Bolivianorganizations, this article responds to calls for re-search in contexts other than North America (seeGreenwood, Diaz, Li, & Lorente, 2010; Scott, 2005).Studies now need to be conducted in other contextsin order to generate comparisons and explore theextent to which our results apply across institutionalcontexts. At a time when social enterprises that com-

bine social welfare and commercial logics are spread-ing across sectors all over the world (Bosma & Levie,2010), the need for further research that addresses therole of organizational factors in the context of hy-

brids, both inside and outside of North America, ispressing. Many observers are skeptical about the sus-tainability of such hybrid organizations because of

the risk of mission drift. Our in-depth exploration of how pioneering commercial microfinance organiza-tions retained their hybrid nature opens the door toresearch that explores how organizations might pre-vent such drift.

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Battilana and Dorado - Building Sustainable Hybrid Organizations